New Delhi: In a break from past trade agreements, India has agreed to provide future domestic policy concessions in investment and services sectors to the Regional Comprehensive Economic Partnership (RCEP) members with a gap of five years.
Known as ‘ratchet’ in trade parlance, it implies that future domestic policy changes undertaken autonomously by India will get committed under RCEP after five years of the policy decision. Under MFN (most favoured nation)-forward, India has also agreed to provide any future investment or services related concession given to a trading partner under a bilateral treaty automatically to RCEP members as well without any time gap.
“Good progress has been made in investment chapter. We have proposed ratchet to come into effect with a grace period of five years from the date of amendment. However, they will be applicable only to the sectors where we chosen to take commitments and not in all sectors,” a commerce ministry official said on condition of anonymity.
While the services agreement under RCEP will be based on a so-called ‘positive list’ specifically mentioning sectors which will be open to member countries, the investment agreement will open up the sectors except a few named by the country known as a ‘negative list’.
India has so far not agreed to provide similar concessions in any other free trade agreement, fearing it could crimp its domestic policy space to change rules if the need arises. However, India’s change in stance is considered a more mature response to changing rules in trade pacts, due to greater confidence in its domestic policy measures.
RCEP is a grouping of 10 members from the Asean grouping, plus India, China, Japan, South Korea, Australia and New Zealand. The group has been negotiating a trade deal since May 2013. Asean stands for the Association of Southeast Asian Nations.
RCEP envisages regional economic integration, leading to the creation of the largest regional trading bloc in the world, accounting for nearly 45% of the world’s population with a combined gross domestic product of $21.3 trillion.
Under pressure to substantially increase its tariff offer under the proposed RCEP trade negotiations, India has made a counter-proposal to make the bilateral services agreement among Asean Australia New Zealand FTA (AANZFTA) to be the basis of the services agreement under RCEP.
The issue is likely to be discussed in the upcoming RCEP Ministerial in Philippines to be held between 9-11 September. It is likely to be the first engagement for India’s new trade minister Suresh Prabhu who replaced Nirmala Sitharaman in the cabinet reshuffle.
Earlier, at the third RCEP ministerial meeting in Hanoi in May, India had asked RCEP members to at least abide by their multilateral commitments on the movement of professionals, in an effort to guard against growing protectionism across the developed world that could hurt India’s information technology sector. India’s changed position from its earlier stand of seeking significant market access under RCEP services negotiation was considered a climbdown by some observers.
India is in a tight spot at the RCEP negotiations due to aggressive market access demands from member countries. While India has so far offered to eliminate tariffs on 80% of traded goods, seeking flexibility to increase or decrease this common concession by 8 percentage points, other countries are seeking to increase the tariff elimination in 92% of goods, which India finds unfeasible, given that China is part of the negotiations with whom India has a $50 billion trade deficit. Indian industry is worried that a higher level of tariff elimination for China may lead to loss of business and competitiveness for them. India is currently proposing to offer around 72% tariff elimination to China over a 20-year period.